The document discusses key concepts related to national income accounting including: 1) It defines the circular flow of income and how goods and services flow between producers and consumers. 2) It explains the different types of goods - final, capital, consumer, and intermediate - and how they relate to production. 3) It covers investment concepts like gross and net investment and how depreciation factors into these calculations. 4) It outlines the main sectors - households, businesses, government - and their roles in the circular flow of income and national income.

1. BASIC CONCEPTS
CIRCULAR FLOW OF INCOME
METHOD OF CALCULATING NATIONAL INCOME
AGGREGATES RELATED TO NATIONAL INCOME
GDP AND WELFARE

2.  Economy depends on flow of production not on
resources.
 Final Goods:Not undergo further production
stage that is for economic activity.
 Capital Goods:Goods of durable character that is
used in production process.
 Consumption Goods:Goods that is used by
consumer for consumption.
 Intermediate Goods:Used as raw material or
input for production.

3. Classification
of goods
Final Goods
Capital Gods
Consumer
Goods
Intermediate
goods

4.  Flow are defined over a period of time.
 Stock are defined at a particular point of
time.
 Investment :
Investment
Gross
investment
Net
investment

5.  Gross investment:1.)Capital for Replacement.
2.)New capital goods for
addition.
 Net investment:New capital goods for additon to
existing capital.
 Cost of good divided by number of years of its
useful life.
Net investment=Gross investment-Depreciation
Gross Investment=Net investment+Depreciation

6. Owner of capital
Earning interest
Landlord
Earning Rent
Enterpreneur
Earning Profit
Labour
Earning Wages

7.  Spend their entire income on purchasing
goods and services produced by domestic
firms.
 There is no external trade.
 The other channels of spending income are
closed.
 Govt section is not there in economy.

9.  It measures production of goods and services
within domestic territory .
 Whole GDP doesn’t belongs to citizens of
country.
 GNP measures production of goods and
services within domestic territory by citizens
of country.
GNP@MP=GDP@MP-Factor income from non-citizens
+Factor income from citizens.

10. Product Formula
NNP@MP GNP-Depreciation
* NNP@FC=National Income
NNP@FC NNP@MP-Net indirect taxes
Net indirect
taxes
Indirect taxes-Subsidies
PI Personal Income(Earned by hoseholds)
UP Undistributed Profit(profit not distributed in factor of
production)
PI NI – UP - Net interest paid by households on loan - corporate
tax+ transfer payment(charity,donation, scholarship,pension)
Personal
disposal
income
PI – Personal tax payment(income tax) – Non tax
payment(fine)
GVA at MP GDP at MP
GVA at basic
prices
GVAMP - Net Product Taxes
GVA at factor • GVA at basic prices - Net Production Taxes

11.  National Disposable Income and Private Income
 Apart from these categories of aggregate macroeconomic
variables, in India, a few other aggregate income
categories are also used in National Income accounting
 National Disposable Income = Net National Product at
market prices + Other current transfers from the rest of
the world
 The idea behind National Disposable Income is that it gives
an idea ofwhat is the maximum amount of goods and
services the domestic economy has at its disposal. Current
transfers from the rest of the world include items such as
gifts, aids, etc.
 Private Income = Factor income from net domestic
product accruing to the private sector + National debt
interest + Net factor income from abroad + Current
transfers from government + Other net transfers from the
rest of the world.